2101 Wilson Boulevard, Suite 610
Arlington, VA 22201
April 9, 2015
Hon. Jack Lew
Department of the Treasury
1500 Pennsylvania Avenue NW
Washington, DC 20220
Dear Secretary Lew:
The Community Home Lenders Association (CHLA) writes to recommend that a portion of the funds contributed by Fannie Mae and Freddie Mac (the “Enterprises”) under the FHFA/Treasury Preferred Stock Purchase Agreement (PSPA) be set aside into a Capitalization Reserve Account, for later use as needed for capitalization of a Cash Window for smaller mortgage lenders under housing finance reform.
The CHLA writes in our capacity as the only national association exclusively representing non-bank mortgage loan originator/servicers. Last July, the CHLA wrote the FHFA, suggesting a number of steps it could take to facilitate a transition to a reformed housing finance system in which taxpayer risk is reduced through risk sharing, while preserving full small lender access. CHLA believes this additional step would address a critical need for capitalization of a Cash Window to ensure that goal.
Last year, the Senate Banking Committee approved comprehensive GSE reform legislation, S. 1217 (also known as Johnson/Crapo), on a bipartisan basis. A cornerstone of that legislation was Section 315, which authorized creation of a Small Lender Mutual, in order to meet the cash window needs of small and medium sized loan originators. This was in response to concerns that a reformed housing finance system might be dominated by a small number of large bank/securities firms, to the detriment of consumers.
Section 315 included a number of necessary provisions designed to ensure creation of this Cash Window function – including the sale, transfer, licensing or leasing of key Enterprise infrastructure technology AND the initial capitalization necessary to “to carry out its activities and functions.” Such initial capitalization is required to be provided by the Enterprises under S. 1217.
CHLA is becoming increasingly concerned about the availability of a source of capitalization funds when at the time when changes are ultimately made to the existing housing finance system. In particular, pursuant to the PSPA, tens of billions of dollars of Enterprise profits are now being remitted to Treasury – without any provision to meet the type of requirements established in S. 1217.
Alternatively, we understand there may be other resolutions of the Enterprises that could take place apart from Congressional legislation – including, for example, recapitalization of the Enterprises or establishment of an independent mutual cooperative to serve small lender Cash Window needs.
Regardless of the ultimate resolution, we grow increasingly concerned that one of the most obvious sources of capitalization for such a Cash Window – payments under the PSPA – continue without any action to set aside a portion of these payments in reserve for this purpose. To date, the Enterprises have repaid the Treasury advance plus tens of billions of dollars more – but none of those funds will be available in the future for this critical purpose, without a change like the one we recommend.
Debate on Congressional reform of the Enterprises established that there are a significant number of mortgage lenders that believe that it is critical under any housing reform to have a fully capitalized Cash Window, capable of fully meeting all the market needs of ALL small and mid-sized lenders on fully competitive rates and terms. These lenders have a legitimate question in asking where the funds to capitalize a Cash Window will come from – if not from Enterprise profits that are otherwise now just going to Treasury.
Finally, deposit of a portion of PSPA payments into a Capitalization Reserve Account need not have any impact on the federal budgetary treatment of these payments. It is simply an interim step to provide the needed flexibility in the future to access funds needed to capitalize an effective Cash Window.
For all these reasons, we ask for your consideration of this recommendation,
COMMUNITY HOME LENDERS ASSOCIATION
cc: FHFA Director Mel Watt